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Housing is unaffordable; Can't keep up
Topic Started: 3 Aug 2014, 12:30 PM (3,944 Views)
Dave
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Jimbo
4 Aug 2014, 11:34 PM
Your friend hasn't increased his net worth by 100k unless he sells now and realises that gain.
You're mixing up "net worth" and "realised gain"

They're not the same thing.

Net worth = assets minus liabilities.

Net worth grows if the value of the asset rises, and shrinks if the value of the asset falls.
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economist
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van
4 Aug 2014, 10:20 PM
All I can say is renting is dead money, it really is not an option.

I already mentioned my friend who bought a unit for $550 a year ago off the plan and it is now worth $650.

In less than a year he has increased his net worth by 100k. His repayments if it was interest only is $2200 month which is the same as how much the rent would have been which is $550-$600 a week.

Basically every week from this time last year, the $700 per week he pays off his place, he got $2,000 in capital gains increasing his net worth. The person renting for $550-$600 just spent the money for a roof over their head and got nothing else out of it.

People have to understand house prices will continue to increase faster than the official inflation rate. That is why property always go up, and those who are invested in property are always doing better than those who are not.

For the life of me, I can not understand why people think holding cash is smart, it just falls and falls in value in relation to property. The 15% increase in Melbourne and Sydney prices for the year..

CPI was 3% for the year until now.....

The bears biggest mistake is assigning too much value to cash, cash is used for transactions, it should not be used as a store of value.

This is an uninformed post from an investment perspective.

Most real estate investors in the current climate rent their home and rent out their properties.

This has been the case for investors living in high priced area for many years.

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van
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Thing is it has been true for decades. Yes prices could have gone down but they didn't and with the system setup the way it is, it won't, not for along time.

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Jimbo
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Dave
4 Aug 2014, 11:45 PM
You're mixing up "net worth" and "realised gain"

They're not the same thing.

You are correct, but the assumption of an assets value to determine net worth is a dangerous one. One of the biggest impacts of any property market downturn is the reduction in consumer spending when their assumed net worth is reduced by a fall in the value of their property. Conversely, assuming a high net worth based on property value is also a big driver of consumer borrowing and spending when prices are going up.

The idea that a homes equity can be borrowed against to fund holidays, cars and so on creates a boom bust economy. The UK economic boom 1997 to 2007 was almost entirely driven by consumers spending housing equity. As house prices started to fall, consumer discretionary spending stalled.
van
5 Aug 2014, 12:20 AM
Thing is it has been true for decades. Yes prices could have gone down but they didn't and with the system setup the way it is, it won't, not for along time.

Prices haven't gone down? Not for decades?

Are you sure?
Edited by Jimbo, 5 Aug 2014, 12:27 AM.
Matthew, 30 Jan 2016, 09:21 AM Your simplistic view is so flawed it is not worth debating. The current oversupply will be swallowed in 12 months. By the time dumb shits like you realise this prices will already be :?: rising.
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Trojan
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Jimbo
4 Aug 2014, 11:34 PM
Your friend hasn't increased his net worth by 100k unless he sells now and realises that gain.
Guess according to you, Warren Buffet is only worth a few millions dollars only since he hasn't realised most of the gains on his shares.
I put trolls and time wasters on my ignore list so if I don't respond to you, you are probably on it ....
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Veritas
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Trojan
5 Aug 2014, 12:42 AM
Guess according to you, Warren Buffet is only worth a few millions dollars only since he hasn't realised most of the gains on his shares.
Id say Warren has shares in more than one company.

And can sell those shares in a nanosecond if he so wishes.

In marked contrast to our "eggs in one basket" cottage industry of property speculators.

Housing is the most illiquid asset of all as lots of WA property investors are learning right now in their rush for the door.

Property acquisition as a topic was almost a national obsession. You couldn't even call it speculation as the buyers all presumed the price of property could only go up. That’s why we use the word obsession. Ordinary people were buying properties for their young children who had not even left school assuming they would not be able to afford property of their own when they left college- Klaus Regling on Ireland. Sound familiar?

The evidence of nearly 40 cycles in house prices for 17 OECD economies since 1970 shows that real house prices typically give up about 70 per cent of their rise in the subsequent fall, and that these falls occur slowly.
Morgan Kelly:On the Likely Extent of Falls in Irish House Prices, 2007
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Jimbo
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Veritas
5 Aug 2014, 01:11 AM
In marked contrast to our "eggs in one basket" cottage industry of property speculators.

Housing is the most illiquid asset of all as lots of WA property investors are learning right now in their rush for the door.
But it is so much easier to sell your investment properties when they are all in the same street. :D
Matthew, 30 Jan 2016, 09:21 AM Your simplistic view is so flawed it is not worth debating. The current oversupply will be swallowed in 12 months. By the time dumb shits like you realise this prices will already be :?: rising.
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Trojan
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Veritas
5 Aug 2014, 01:11 AM
Id say Warren has shares in more than one company.

And can sell those shares in a nanosecond if he so wishes.

In marked contrast to our "eggs in one basket" cottage industry of property speculators.

Housing is the most illiquid asset of all as lots of WA property investors are learning right now in their rush for the door.
None of which changes the fact that Jimbo's claim that unrealised gains shouldn't be added to net worth is just plain wrong.

I'm not interested in your bear cheerleading and muddying of waters.
Address my point and tell me if you think Jimbo is right.
Edited by Trojan, 5 Aug 2014, 01:50 AM.
I put trolls and time wasters on my ignore list so if I don't respond to you, you are probably on it ....
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Jimbo
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Trojan
5 Aug 2014, 01:41 AM
None of which changes the fact that Jimbo's claim that unrealised gains shouldn't be added to net worth is just plain wrong.
If you read up the thread a bit, I have acknowledged your definition of net worth as being correct (in my reply to Dave).
However, property is an illiquid asset that can't be realised by just placing a sell order. Dublin was full of property millionaires one minute and bankrupts the next.
Edited by Jimbo, 5 Aug 2014, 02:08 AM.
Matthew, 30 Jan 2016, 09:21 AM Your simplistic view is so flawed it is not worth debating. The current oversupply will be swallowed in 12 months. By the time dumb shits like you realise this prices will already be :?: rising.
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Lef-tee
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You are correct, but the assumption of an assets value to determine net worth is a dangerous one. One of the biggest impacts of any property market downturn is the reduction in consumer spending when their assumed net worth is reduced by a fall in the value of their property.


Relatives of mine are experiencing this at present. They bought a house - to live in, not as an investment - in a small community that was once a thriving ore-mining town. The the ore was still there but the deposit was small compared to the enormous mega-mines we currently export from so I suppose it wasn't economically viable. They paid about $17 000 for a house on half-an-acre with a second adjoining block. They lived there for about a decade before moving back to Queensland. When it looked as though China was going to buy every last crumb of ore that Australia could dig up and pay ever-increasing prices for it, the mine was re-opened and prices in the town soared from low double-digits into the hundreds of thousands. They are pensioners without much money but they were able to borrow against the now vastly larger value in their house and bought a good new 4WD to tow their van.

However, the boom is now going bust and houses in the town have stopped selling. They have just been stung for $6000 for repairs to the roof that insurance refuses to pay for. While house prices tend to be sticky downward, I fear that the old house is likely to become a money-sink and there is virtually nothing there to retain the value but it will require costly ongoing repairs. Even if it is still technically worth $100 000 you have to be able to find a willing buyer before you can realise that value - if no one is willing to buy then it is really worth nothing in a monetary sense.

You never really know how things are going to turn out but I think I would be trying to flog the thing for whatever I could get for it before it morphs from an asset into a liability.

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